The kingdom's drive to lead and innovate in the fintech space can potentially attract new segments of investors

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By Nada Al Rifai, ZAWYA

Two Saudi firms have been granted experimental permits to test robo-advisory services and computer-generated advice for investors, a move that could potentially tap new segments of investors in the region’s largest capital market.

The Saudi Capital Market Authority (CMA) announced on Tuesday that it has given its approval to Wahed Capital and Haseed Investing Company to test their robo-advisory services.

According to Junaid Wahedna, Group CEO at Wahed, Saudi youth in particular are very interested in digital products and offerings. “We also expect a huge demand from women, who have expressed significant interest due to the privacy and convenience digital investment platforms provide,” he told Zawya.

“If this platform is implemented after passing the experimental period, it would encourage millennial, tech-savvy, mid-income people and those living in rural areas to enter this segment of investment,” Mohamed Roushdy, a Dubai-based fintech advisor at an asset management firm, told Zawya.

“The algorithm-based decision would help them select the right investment portfolio, or they can let robo-advisory manage their portfolio based on their risk profiles. … [I]nvesting using such platforms could start from few hundreds Saudi riyals, with full transparency on the investment lifecycle,” he added.

That Wahed Capital offers Shariah-compliant robo-advisory services is significant for the Saudi market and makes it appealing to a wider customer base, Roushdy noted.

“We will explore future offerings such as products for Waqfs and Family Offices where we've had requests for Islamic products specific to their liquidity and risk based needs,” Wahed's Junaid said.

“We expect Saudi to be one of our largest global markets, if not the largest,” he said, adding, “The Saudi market as a whole is in need of transparent and efficient financial products in line with global standards.”

In a bourse filing, CMA said that the experimental permits allow clients to get advice on securities or investment schemes through direct access to an automated online platform. The companies will also be able to offer automated online discretionary investment management.

Earlier this month, the UAE capital initiated a new governance and regulatory regime for robo-advisors with the aim to draw more digital asset management firms to its international financial centre, Abu Dhabi Global Market (ADGM).

Although Saudi Arabia recently joined the race to promote a fintech ecosystem with its launch of Fintech Saudi in April 2018, after other Gulf countries like UAE and Bahrain, its progress is ‘remarkable’ according to Roushdy.

“SAMA was the first central bank in the region to start a pilot project for instant cross border transfer using Blockchain payment technology, in February 2018 and the second in the world after the Bank of England,” he said.

The CMA’s move in issuing Fintech Lab regulations and offering “experimental permits” to allow fintech companies to join this sandbox is being seen as another key step by the kingdom in driving the fintech ecosystem.

The criteria given by the CMA to join included promoting growth or competition in the capital market as well as supporting better compliance and risk management solutions for it.

Globally, assets under management in the robo-advisory segment reached more than $980 billion in 2019, according to global data platform Statista. The assets under management are expected to show an annual growth rate of 27 percent resulting in more than $2.5 trillion by 2023.

Earlier this year, the Saudi central bank launched regulatory sandbox for fintech firms that allows local and international financial technology firms to test new digital solutions.

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